English court refuses to stay court proceedings in favour of arbitration against a non-party to the arbitration clause

What you need to know

• If a party is sued in the English court, but argues that the claims against it should be heard in arbitration instead, it can apply to the court for a stay of court proceedings under section 9 of the English Arbitration Act. This will involve consideration of: (1) what the "matters" are in respect of which the court proceedings have been brought; and (2) whether those matters are ones which the parties agreed to refer to arbitration.
• Applying the Supreme Court's recent decision in Mozambique v Privinvest (see our article on this judgment here), the English court in Município de Mariana & ors v BHP Group (UK) Ltd and ors [2023] EWHC 3281 (TCC) has rejected arguments that a non-party was bound by an arbitration clause and that any breach of the agreement containing the clause was a "matter" in the relevant court proceedings, and declined to order a s9 stay.
• The case is a reminder that, while the English courts remain supportive of arbitration, there will be circumstances where a dispute falls outside the scope of an arbitration clause. This may be a particular risk in complex transactions or multi-party structures. The court's power to order a s9 stay will be exercised rigorously, following a detailed consideration of the nature of the claims and defences in each case, together with the meaning and scope of the arbitration clause under the applicable law.
• The decision also emphasises that, in relation to parties that are not direct signatories to arbitration agreements, the English court's starting point is that it is unusual for a party to be bound by an arbitration clause that it did not itself agree to.

Background to the dispute

This decision arose in the context of claims arising from Brazil's worst environmental disaster, the collapse of the Fundão Dam in November 2015. The dam was owned and operated by Samarco Mineração S.A., (Samarco) a joint venture between BHP Brasil Ltda (BHP Brasil) and Vale S.A. (Vale). Group claims seeking compensation for losses caused by the dam collapse, with an estimated value of £36 billion, have been brought by more than 700,000 Brazilian claimants in the English court against two companies in the BHP group, BHP Group (UK) Ltd and BHP Group Ltd (BHP).  BHP in turn brought an additional claim against Vale under Part 20 of the Civil Procedure Rules (Part 20 Claim), seeking a contribution to any amounts BHP might be found liable to pay the group claimants.

Vale challenged the court's jurisdiction in respect of the Part 20 Claim earlier in 2023, but was unsuccessful.

Application for a stay under section 9

Vale applied to stay the Part 20 Claim under section 9 of the Arbitration Act 1996. Section 9 provides:

• in subsection (1) that "a party to an arbitration agreement" may apply for a stay of court proceedings insofar as they concern a "matter" which under the arbitration agreement is to be referred to arbitration; and
• in subsection (4) that the court shall grant stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.

Vale argued that the Part 20 Claim was subject to the arbitration clause included in a shareholders' agreement between BHP Brasil, Vale and Samarco. Most relevantly, Vale argued: (1) that the arbitration clause in the shareholders' agreement bound BHP under Brazilian law (the law of the agreement) even though it was not a party; and (2) that the "matters" in issue in the Part 20 Claim fell within the arbitration clause, and the court was therefore required to stay the Part 20 Claim.

The decision

Following the Supreme Court's decision in Mozambique (see our article on this judgment here), the judge referred to the two stage process for considering an application for a stay under s9, which are (1) to identify the matters in respect of which the proceedings have been brought and (2) to assess whether those matters are ones which the parties agreed to refer to arbitration.

If there is an issue as to whether one of the parties is a party to the arbitration clause, the judge held that this should be considered in the context of those primary questions under s9(1), with the applicant bearing the burden of proof. This was contrary to Vale's argument, which was that BHP bore the burden of proof, because the question of whether it was a party to the arbitration clause instead arose under s9(4). 

The judge commented that the "starting point is that it is unusual for a party to be bound by an arbitration clause to which, on the face of things, it never itself agreed" and that if this is what the applicant contends "it should bear the burden of proof of establishing … that unusual outcome".

In this context, the judge conducted an analysis of the nature of the claim brought and the arbitration clause in the shareholders' agreement, considering relevant principles of Brazilian law.  On the facts, the judge held that the arbitration clause was not binding on BHP, with BHP Brasil being the "actual contracting party" and the party taking actions under the shareholders' agreement. 

Although Vale's application for a stay failed on that basis, the judge went onto consider, if BHP had been bound by the arbitration clause, whether the matters in the proceedings fell within the arbitration clause. Following the two stage test in Mozambique, the judge decided that breach of the shareholders' agreement was not a substantial or essential matter arising in the main proceedings or Part 20 Claim. Vale's references to such breaches in its defence in the Part 20 Claim were "artificial, and designed to bring the claims made against Vale within the arbitration clause, when otherwise they would not".

What does this mean in practice?

Parties who have agreed to resolve disputes through arbitration can remain assured that the English court will respect and uphold arbitration clauses, including by staying proceedings that are brought in breach of such clauses.  However, as this case shows, this approach will not generally extend to situations where the party in the relevant proceedings is not a party to the arbitration clause (unless a legal and factual basis for doing so can be established by the party seeking the stay) or where the arbitration clause does not cover a "matter" in the proceedings.

This may be a particularly important issue in circumstances where there are complex group structures and multi-party transactions and contracts, which can lead to questions about whether particular disputes or parties fall within the ambit of contractually agreed arbitration clauses. If the parties' aim is to ensure that all disputes are covered by an arbitration clause, consideration needs to be given to these issues at the drafting stage, together with any parties that may need to be signatories.

Finally, the court's power to order a s9 stay will be exercised carefully on a fact-dependent basis, following a detailed consideration of the nature of the claims and defences in each case, together with the meaning and scope of the arbitration clause under the applicable law.