Arbitration clauses in shareholders agreements and articles of association

There have been two conflicting cases on whether arbitration clauses must or may be followed where a shareholder seeks a remedy under the Companies Acts - both involving unfair prejudice where the court can order one party to buy the other's shares (a remedy which an arbitrator can provide) or order the company's winding up (a remedy which only the courts can provide).

In the first, Re Vocam Europe Ltd[1998] BCC 396, the High Court had stayed an unfair prejudice petition where a shareholders agreement had provided for all matters in dispute to be referred to arbitration. In the second, Exeter City Association Football Club Ltd v. Football Conference Ltd [2004] 1 WLR 2910, the High Court had refused a stay on the basis that the statutory rights conferred on shareholders to apply for relief were inalienable and could not be diminished or removed by contract (such as an arbitration agreement) or otherwise.

In the present case the High Court and the Court of Appeal followed the first.The inability of an arbitral tribunal to grant certain types of relief affecting third parties did not mean that it was not possible for members of a company to agree to submit disputes inter se as shareholders to arbitration.

Where the dispute was between members of a company or between shareholders and the board relating to alleged breaches of the company's articles of association or a shareholders' agreement, this was to be seen as an essentially contractual (internal) dispute which did not necessarily engage third party rights or impinge on any statutory safeguards imposed for the benefits of third parties, and was therefore generally arbitrable.

When deciding whether a corporate dispute was arbitrable or not, the question to consider was whether the claim brought attracted "a degree of state intervention and public interest such as to make it inappropriate for disposal by anything other than judicial process".

(The case of Fulham Football Club (1987) Ltd v Richardsconcerned an unfair prejudice petition brought by Fulham Football Club ("Fulham") being a shareholder in the Football Association Premier League (FAPL) regarding allegations that Sir David Richards, chairman of the FAPL, had acted as an unauthorised agent with respect to the transfer of Peter Crouch from Portsmouth to Tottenham Hotspur Football & Athletic Company Limited, to the detriment of Fulham. The question arose as to whether the matter should be dealt with according to the extensive arbitration provisions with the articles of association of FAPL or whether Fulham could go directly to the courts.)

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