CEO secrets: English High Court grants stay for arbitration in £45 million conflict of interest proceedings

In NTT Limited & Others v Goodall1 the High Court granted a case management stay of proceedings in favour of arbitration, even though the arbitration involved only some of the parties. The Court provided practical guidance on the correct test to be applied in refusing or granting a stay, particularly in multi-party proceedings.
Author(s): Kate Holland
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The facts

A group of seven related companies based in the UK, Isle of Man and South Africa (the claimants) sued their former global CEO Jason Goodall in the English High Court, their claims totaling around £45 million. One of the claimants, NTT Limited (NTT), was the parent company of the other six claimants.

The employment contract between Mr Goodall, NTT Limited and two other claimants contained an alternative dispute resolution (ADR) clause requiring them to resolve any dispute by arbitration.

In 2019, one of the claimants sold a commercial property to a non-related company (the Sale). Mr Goodall was on the board of the claimant company selling the property and which recommended the Sale. However, unbeknownst to the claimants, he was also an investor in the non-related company purchasing the property (Purchaser) and did not disclose this involvement.

In November 2020, Mr Goodall entered a 17.5 million USD agreement with NTT and another claimant, terminating his employment. At the time of this termination agreement, NTT and the other claimants were still unaware of Mr Goodall’s involvement with the Purchaser in the Sale.

When they discovered it, they commenced the court proceedings. They claimed Mr Goodall had breached his fiduciary or contractual obligations by deliberately concealing his involvement with the Purchaser and failing to disclose his conflict of interest.

NTT sought rescission of the termination agreement and restitution of the termination payment, on the basis that it would not have entered into the termination agreement had Mr Goodall disclosed the conflict of interest and breaches. The other claimants sought other damages, including salary, bonus and termination payments they had made, investigation fees and losses arising from the Sale.

Mr Goodall applied to the Court to stay the proceedings while his disputes with NTT and two other claimants were referred to arbitration, pursuant to the ADR clause in his employment contract with them.

The decision

The Court stressed that in exercising its discretion to grant a stay, the test is whether the stay is in the interests of justice2.  The Court identified some key factors in this case which favoured granting the stay, but stressed that it was the totality of these factors, and not any one of them alone, which was determinative.

  1. Staying the proceedings would delay but not deprive the claimants of their right to bring the claim. Delayed recovery of losses could be compensated by an award of interest.
  2. Although the arbitration had not yet started, the court proceedings were also only at a very early stage.
  3. Arbitration is an expedited procedure and almost certain to come to a decision before court proceedings would be concluded.
  4. If Mr Goodall was slow to pursue the arbitration, the claimants could apply for the stay to be lifted.
  5. The fact that parties to an arbitration are different to the parties to the litigation is not an absolute bar to staying proceedings. The relevance of same/different parties is whether the outcome of the arbitration will determine the outcome of the court proceedings. In this case, the practical effect of an award in the arbitration may well be that the court proceedings would not proceed because:
    1. Although the claimants in the litigation are separate companies claiming separate losses and some would not be involved in the arbitration, they are all related companies and their claims and losses all arise from the same core central factual case and core claims of their parent company NTT, which would participate in the arbitration.
    2. The arbitral award would probably end all remaining claims against Mr Goodall. Even if the arbitral award went against him, it would likely bankrupt him (NTT’s claims amounting to £38 million of the £45 million total claimed), with the effect that the other claimants would be unlikely to recover their losses in the court proceedings anyway.
  6. If the arbitration and litigation proceeded in parallel, there would be a risk of inconsistent decisions, resulting in undesirable practical consequences.
  7. The Court has a duty to ensure proceedings are conducted fairly and at proportionate cost. Parallel proceedings would incur two sets of costs which would oppress Mr Goodall, an individual, in comparison to the claimants who are a multinational corporation.

Conclusion

In granting the stay, the Court highlighted that the correct test is simply whether the stay is in the interests of justice, and that in any case, it will be the totality of all the factors and circumstances at play, rather than any one particular factor, which will answer that question.

References

[1] NTT Limited & Others v Goodall [2024] EWHC 445 (Comm).
[2] Athena Capital Fund v Holy See [2022] EWCA Civ 1051.

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