In January 2022, the Court of Appeal in Lifestyle Equities CV & Anor v Hornby Street (MCR) Ltd & Ors dismissed an appeal against a stay of proceedings, made under section 9 of the Arbitration Act 1996, concerning trade mark infringement. Section 9 requires the court to stay proceedings on the application of a party “against whom legal proceedings are brought… in respect of a matter which under the agreement is to be referred to arbitration”. This is an unusual example of legal proceedings being stayed even though the claimant was not a party to the arbitration agreement, with the Court of Appeal judgment also containing a dissenting opinion on the central issue on appeal.
The claimants (“Lifestyle”) were assignees of UK and EU trade marks (the “Trade Marks”), the Respondents were the owners of similar trade marks.
Before the assignment of the Trade Marks to Lifestyle, one of the Respondents (“SBPC”) settled a dispute concerning the use of the Trade Marks by way of a co-existence agreement, governed by California law and including an arbitration agreement under the rules of American Arbitration Association, with the seat of arbitration to be Los Angeles (“1997 Agreement”). Lifestyle were not aware of the 1997 Agreement when they acquired the Trade Marks in 2009.
In 2020, Lifestyle issued trade mark infringement proceedings in the High Court in England & Wales, alleging trade mark infringement and passing off. The Respondents applied for a stay of proceedings under section 9. His Honour Judge Hacon granted the stay on the basis that, as a matter of English law, Lifestyle had become a party to the 1997 Agreement, or alternatively, even if Lifestyle was not a party, it would be bound by the arbitration agreement under California law because the 1997 Agreement was a burden attaching to the Trade Marks (irrespective of Lifestyle’s knowledge of it). Hacon J also found that Lifestyle were also estopped from asserting it was not bound by the arbitration agreement.
Whilst the decision to stay the proceedings was upheld, the Court of Appeal overturned Hacon J’s finding that Lifestyle had become a party to the 1997 Agreement and his finding on estoppel. The Court of Appeal held that it was wrong to find that Lifestyle was a party to the 1997 Agreement as a matter of English Law, noting that it was not contended by the Respondents that Lifestyle had become a party to the 1997 Agreement. Since the estoppel issue was largely a factual matter, it is not considered further.
The central issue on appeal was whether Lifestyle was, nonetheless, bound by the arbitration agreement, even though it was not a party to it. On this question, a conflict of laws issue arose. In determining if Lifestyle had become bound by the arbitration agreement in the 1997 Agreement, did English and EU law apply, or did Californian law apply? Hacon J treated the question as one of the interpretation of the arbitration agreement in the 1997 Agreement, which he found was a matter of Californian law. On this issue, the Court of Appeal was split, with Lord Justice Snowdon dissenting. In his opinion, the issue was whether the assignments of the Trade Marks had the effect that Lifestyle had become bound by the arbitration agreement, which in his opinion had nothing to do with the interpretation of the arbitration agreement itself. Snowdon LJ concluded that English law was the applicable law in determining whether Lifestyle had become bound by the arbitration agreement and on that basis he would have allowed the appeal.
The majority view, as set out in Lord Justice Lewison’s opinion, was that whilst the question was not a matter of the interpretation of the arbitration agreement, it was still a question of the scope of the agreement. In his opinion, the law governing the arbitration agreement must also go to the question of who is bound by it. On that basis, California’s law was applicable and, therefore, the Court of Appeal found that Lifestyle was bound by the arbitration agreement and maintained the stay of proceedings.
Mandatory Stay of Proceedings – Section 9, Arbitration Act 1996
Section 9 of the Arbitration Act 1996 concerns the stay of legal proceedings. Section 9(4) provides, “the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed” (emphasis added). Therefore, unless the court finds that an arbitration agreement is “null and void, inoperative or incapable of being performed”, it is mandated to stay the proceedings. Lewison LJ summarised that issue in the present case on the basis that if the arbitration agreement were not binding on Lifestyle, then the arbitration agreement would be “inoperative” at least against Lifestyle. Having found that Lifestyle had become bound by the arbitration agreement, the Court of Appeal was satisfied that the arbitration agreement was, therefore, operative against Lifestyle.
A threshold point was also helpfully addressed the Court of Appeal; was it a requirement that section 9 only be invoked against a party to the arbitration agreement? Lewison LJ observed that “nothing in section 9… says that the application for a stay may only be made against another party to the arbitration agreement”. He concluded, therefore, that section 9 did not prevent a party from making an application under Section 9 against a non-party to the relevant arbitration agreement.
Article co-authored by Avita Rajoo, Trainee Solicitor at CMS.