May It Please The Court: Does 'May' In An Arbitration Clause Convey Choice About Proceeding To Arbitration?

The difference between the mandatory "shall" and the permissive "may" in a contract is, perhaps typically, straightforward. One mandates action; the other allows, but does not require, it. This analysis can be more complex in the context of an arbitration agreement: can a party to the agreement force a stay of litigation based on a clause that states the parties may submit the dispute to arbitration? The Privy Council in Anzen Limited v. Hermes One Limited faced essentially this question, and, in part based on Ontario Court of Appeal jurisprudence, held that the answer is yes.

Background

The facts in Anzen may be briefly stated. The parties were shareholders in a business incorporated in the British Virgin Islands, Everbread Holdings Ltd., for the purpose of developing airline fare search software. They entered into a shareholders' agreement that contained an arbitration clause. The portion of clause 19.5, the arbitration clause, read: "If a dispute arises out of or relates to this Agreement or its breach (whether contractual or otherwise) and the dispute cannot be settled within twenty (20) business days through negotiation, any Party may submit the dispute to binding arbitration."

The respondents, Hermes One Ltd., commenced proceedings against the appellants and Everbread alleging unfairly prejudicial conduct in the management of Everbread's affairs. The appellants applied to stay the proceedings pursuant to clause 19.5 and section 6(2) of the Arbitration Ordinance 1976. They did not seek to commence arbitration against Hermes One Ltd. The court of first instance dismissed the stay application because the appellants had not commenced arbitration, and the Court of Appeal upheld that judgment. At issue before the Privy Council was the construction of clause 19.5 and whether it allowed the appellants to seek a stay of the litigation in favour of arbitration, without actually commencing arbitration themselves.

Decision

The Court organized its reasons by focusing on three "possible analyses" of clause 19.5. Quoting directly from the Court's reasons, the three analyses were as follows:

a) The words "any party may submit the dispute to binding arbitration" are not only permissive, but exclusive, if a party wishes to pursue the dispute by any form of legal proceedings (analysis I).

b) The words are purely permissive, leaving it open to one party to commence litigation, but giving the other party the option of submitting the dispute to binding...