Authors: Velislava Hristova & Boris Praštalo*
| Jurisdiction: England |
Topics:
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In Lifestyle Equities CV and another v. Hornby Street (MCR) Ltd and others [2022] EWCA (Civ) 51, the England and Wales Court of Appeal (“Court”) dealt with the question of which law applies when determining whether a non-signatory is bound by the arbitration agreement. The Court upheld the stay of trademark infringement proceedings in accordance with section 9(1) of the Arbitration Act 1996 (“Act”), finding by a split decision that the law governing the arbitration agreement, which in this case was Californian law, governs the issue of whether a non-signatory is bound by the arbitration agreement.
I. FACTUAL BACKGROUND
The first and second appellants, Lifestyle Equities C.V. (“First Appellant”) and Lifestyle Licensing B.V. (“Second Appellant”) (together “Appellants”) were the registered proprietor and the licensee of the below trademarks, which protected a figurative mark – the “Beverly Hills Logo” and a wordmark – “Beverly Hills Polo Club”, registered in the UK and the EU (“Trademarks”).[1]
The Beverly Hills Logo was originally used by a Californian company called BHPC Marketing Inc. (“BHPC”).[2]
The eighth respondent in the case at hand, Santa Barbara Polo & Racquet Club (“SBPRC”) was the owner and used the below logo, which was similar to the Beverly Hills Logo.[3]
Following a dispute in 1997, BHPC and SBPRC entered into a co-existence agreement concerning the use of their respective logos and ownership of a number of US trademarks (“Agreement”).[4] The Agreement was governed by Californian law and contained the following arbitration clause:
Any controversy, dispute or claim with regard to, arising out of, or relating to this Agreement, including but not limited to its scope or meaning, breach, or the existence of a curable breach, shall be resolved by arbitration in Los Angeles, California, in accordance with the rules of the American Arbitration Association. Any judgment upon an arbitration award may be entered in any court having jurisdiction over the parties.[5]
After a number of assignments of the Trademarks by BHPC in 2007 and 2008 to other US corporations, in 2009, the Trademarks were assigned to the First Appellant.[6]
In 2015, the First Appellant applied to register in Mexico the Beverly Hills Logo and the Beverly Hills Polo Club and provided a consent letter signed by SBPRC indicating the agreement of the latter for the registration and including a reference to the Agreement (“Consent Letter”).[7]
II. APPELLANTS’ CLAIM AND THE SBPRC’S STAY APPLICATION
In 2020, the Appellants brought a claim before the English courts for infringement of the Trademarks by the respondents concerning respondents’ goods sold in the UK and the EU.[8] The Appellants argued that they were not a party to the Agreement, they did not have knowledge of its existence when they were assigned the Trademarks, and that they were not bound by it.[9]
The respondents applied for a stay of the claim under section 9 of the Act, which provides as follows:
(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.
…
(4) On an application under this section, the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.
In support of their application for a stay, the respondents advanced two arguments under Californian law, claiming that the Appellants were bound by the Agreement: first, as assignees of the Trademarks and second, by virtue of the operation of the doctrine of equitable estoppel as a consequence of their reliance on the Agreement to obtain the Consent Letter.[10]
III. THE HACON J JUDGMENT
By a judgment rendered on 30 November 2020, Hacon J decided to stay the claim on the following alternative grounds: first, pursuant to English law, the Appellants had become parties to the Agreement as a result of their dealings with SBPRC in 2015; second, under Californian law, the Appellants were bound by the Agreement as it was a burden attached to the Trademarks which passed with their assignment and third, under Californian law of equitable estoppel, the Appellants were precluded from denying that they were bound by the Agreement.[11] The Appellants appealed the stay of the proceedings.[12]
IV. THE JUDGMENT OF THE COURT OF APPEAL
The judgment of the Court of Appeal resulted in the same outcome – stay of the proceedings – albeit with significant disagreements with Hacon J’s reasoning and a lengthy dissenting opinion by Snowden LJ.
The Court of Appeal agreed unanimously that Hacon J erred in finding that the Appellants had become parties to the arbitration agreement. Namely, since the Respondents never argued that the Appellants had, in fact, become the parties to the arbitration agreement in accordance with the Californian law, and since correspondingly no expert evidence was presented on this matter, Snowden LJ concluded that Hacon J “should not have chosen to express his own view” on this issue.[13] Furthermore, the Court also found in unison that Hacon J was mistaken in finding that the Appellants were bound by the arbitration agreement as a result of the equitable estoppel doctrine. The test that Hacon J had identified in this respect was not applied properly, thus, the conclusion reached under it was not sound.[14] Two other judges on this case – Macur LJ and Lewison LJ, agreed with Snowden LJ on these two issues.
What they vehemently disagreed on was whether the Appellants were actually bound by the arbitration agreement and thus entitled to the stay of proceedings. Snowden LJ opined that Hacon J erred in concluding that it was a matter of the interpretation of the arbitration agreement whether the Appellants had become bound by it. In his understanding, binding non-signatories can never be done solely on the basis of interpretation.[15] Instead, there has to be an additional ingredient, i.e. “some further relevant principle of law” serving to bind the non-signatory to the agreement.[16] In the case at hand, apart from estoppel, only the fact that SBPRC took assignments of the Trademarks could potentially serve as that additional ingredient. Thus, in his view, it would be plainly wrong to conclude that the applicable law to the question of whether the Appellants had become bound by the arbitration agreement is Californian law. Instead, the only logical solution, opined Snowden LJ, would be to apply the law governing the Trademarks since this is the only potential element that could have the ‘glueing’ effect between the Appellants and the arbitration agreement. In the case at hand, that would be “the UK or EU law, as appropriate”.[17]
The majority, however, disagreed with Snowden LJ. In their view, the question of who is actually bound by the arbitration agreement is to be answered in accordance with the law governing the arbitration agreement itself. They agreed with Snowden LJ that this question is not a question of interpretation of the contract. However, they viewed it as a question of the scope of the arbitration agreement. The majority viewed the parties’ choice of Californian law as the applicable law in the arbitration clause as extending to the arbitration agreement as well. Since the Californian law takes a broader stance towards who can be bound by the arbitration agreement, the majority was of the opinion that it was reasonable for Hacon J to conclude that the Appellants had become bound by the arbitration agreement.[18]
V. STILL NOT AT THE FINAL FRONTIER?
Given the fiery dissenting opinion by Snowden LJ, it is entirely plausible that the issues presented by this case may find their way to the Supreme Court at some point in the future. Until then, the parties should be cognizant of the possibility that section 9 of the Act is not limited to parties to the arbitration agreement, but in certain circumstances, even non-parties will be in the position to apply for the stay of proceedings. Furthermore, parties who are assignees and to whom section 9 of the Act may apply would be well advised to check the dispute resolution arrangements in relation to the assigned rights if they are unsure of their contents or status.
Even though the Supreme Court may be called upon to settle the questions raised by this case in the future, it is highly likely the apex court will follow the position of the Court of Appeal. Firstly, while Snowden LJ’s observations that mere interpretation of the arbitration agreement can in no way bind a non-party to the arbitration agreement and that an additional principle or doctrine enshrined in law would be needed to this end basically constitute a truism, he errs in one very important respect. Namely, by formulating at the very characterisation stage the only principle that, in his view, could bind the parties to the arbitration agreement, he overlooks the possibility that the law governing the arbitration agreement may offer another principle or doctrine that would bind a non-signatory to the arbitration agreement itself. Namely, his approach in advance eliminates the possibility that the said principle or doctrine may be offered by the law governing the arbitration agreement. In the case at hand, the Californian law, which is the law governing the arbitration agreement, perceives a settlement agreement containing an arbitration clause as a burden that attaches to the trademark and thus passes with its assignment to the assignee, whether they know or not of its existence.
Secondly, it is to be expected that the Supreme Court will favour a pro-arbitration approach, and it is the approach of the majority that embodies it. Having one law applicable to the arbitration agreement, and then having another law determining whether a non-signatory is bound by the arbitration agreement could bring about complications that would be welcome neither by courts nor arbitral tribunals.
* Velislava Hristova is a Bulgarian qualified lawyer trained in civil law and common law jurisdictions. She specialises in investor-state arbitration, complex commercial disputes and public international law and is a Dispute Resolution Fellow of the American Bar Association’s Section of Dispute Resolution and a Diversity Fellow of the International Law Section. She can be contacted at hristova.velislava@gmail.com.
Boris Praštalo is an Assistant Professor at the International University of Sarajevo, Faculty of Law where he teaches an array of courses, including Commercial Law, Private International Law and Intellectual Property Law. He holds an SJD degree from Central European University. In 2017, he was a Visiting Scholar at Cornell Law School. Boris can be reached at bprastalo@ius.edu.ba or prastalo.b.boris@gmail.com.
[1] Lifestyle Equities CV and another v. Hornby Street (MCR) Ltd and others [2022] EWCA (Civ) 51 [4] (Eng.).
[2] Id. at [5].
[3] Id. at [6].
[4] Id. at [6], [7].
[5] Id. at [10].
[6] Id. at [11].
[7] Id. at [14], [15].
[8] Id. at [16].
[9] Id. at [17].
[10] Id. at [20].
[11] Id. at [21].
[12] Id. at [22].
[13] Id. at [25].
[14] Id. at [75].
[15] Id. at [36].
[16] Id. at [37].
[17] Id. at [56].
[18] Id. at [117].