Judge Right to Bow Out in Arbitrator’s Favour in £93 Million Property Dispute

Posted: 12th August 2020

There is a powerful public interest in parties to contracts having the freedom to agree how any disputes between them should be resolved. That principle underpinned the Court of Appeal’s ruling that a dispute arising from a property company’s brief removal from the Register of Companies must be submitted to arbitration.

FieldAn aerospace company had entered into a contract by which it agreed to procure the sale of two parcels of land to the property company for £93 million. The contract contained an arbitration clause to the effect that any disputes arising would be submitted to an independent arbitrator for resolution. The contract provided that, if the buyer suffered an event of default, the seller would be entitled to terminate the agreement forthwith. Such an event would include the buyer being struck off the Register or dissolved.

Due to an unfortunate oversight, the buyer was late in filing its annual return and accounts at the end of a financial year. A reminder from the Registrar of Companies went astray and the buyer was struck off the Register and dissolved. Once it realised what had happened, the buyer successfully applied for administrative restoration to the Register. It was only in a state of dissolution for about two months but, in the interim, the seller gave notice terminating the contract.

An arbitrator later ruled that the termination was valid and the buyer’s appeal against that decision was rejected. The buyer then resorted to launching proceedings under Section 1028(3) of the Companies Act 2006, seeking a declaration that the seller’s termination of the contract was of no effect. Alternatively, it sought an order requiring the seller to enter into a new agreement on the same terms as before.

Section 1028(3) empowers judges to take such steps as they consider just to place, as nearly as may be, restored companies in the same position as if they had not been dissolved or struck off the Register. In staying the buyer’s application, however, a judge ruled that the matter concerned a dispute arising under the contract and that the buyer was thus required to first submit its claim to arbitration.

In dismissing the buyer’s appeal against that outcome, the Court noted that Section 9 of the Arbitration Act 1996 requires judges to give effect to arbitration clauses unless satisfied that they are null and void, inoperative or incapable of being performed. The buyer’s arguments that the arbitration clause did not extend to its claim for relief under Section 1028(3) and that the matter was in any event not susceptible to arbitration both fell on fallow ground.