IS Prime takes Think Markets to the High Court in huge lawsuit for damages over exclusivity agreement

British prime of prime brokerage IS Prime, part of the long established ISAM company led by Lord Stanley Fink has instigated a substantial litigation action against FX and CFD brokerage TF Global Markets (UK) Ltd, TF Global Markets (Aust) Ltd and Think Capital, known as Think Markets, over an exclusivity agreement that was promised to IS Prime by Think Markets following the acquisition of ThinkLiquidity LLC’s assets by ISAM in 2017.

The lawsuit is currently ongoing, with a hearing having taken place earlier this month at the High Court under the law of England and Wales, which resulted in a judgement by High Court Judge Mr Justice Andrew Baker having been handed down remotely by circulation to the parties’ representatives by email. The date and time for hand-down is deemed to be 10.00 am on December 9, 2020.

IS Prime Risk Services Inc, now known as IS Risk Analytics Inc (“ISRA”), and Think Liquidity LLC (“Think”) are companies incorporated in the State of Delaware, USA.

By a sale and purchase agreement dated 18 January 2017 (“the Sale Agreement”), ISRA agreed to buy and Think agreed to sell certain business assets, including the domain name thinkliquidity.com and proprietary software related to it, software and content databases, customer email lists and databases, and intellectual property rights.

By Section 7.8 of the Sale Agreement, it is governed by Delaware law and the parties submitted to the exclusive jurisdiction of the courts of the State of Florida, sitting in Palm Beach County, in respect of it. Section 7.7 provides that any dispute, controversy or claim between the parties to the Sale Agreement arising out of or relating to it “shall first be submitted to non-binding arbitration” in Palm Beach County, under and in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“the AAA”; “the AAA Rules”).

Alleged breach of rules

Neither the claimant nor any of the defendants was or is party to the Sale Agreement. However, the Sale Agreement contemplated that there would be contracts between them for the provision of services, and the claimant says contracts were concluded on the basis of its primary terms of business, FX terms of business and trading conditions for index swaps and spot FX, and an exclusivity agreement dated 19 January 2017 entitled “Liquidity Addendum”. The claimant says that these are all governed by English law with provision for the courts of England and Wales to have jurisdiction (non-exclusively, in the case of the Liquidity Addendum).

In this Claim, the claimant alleges that from about 18 September 2018, in breach of the Liquidity Addendum, the defendants used the services of another broker or brokers for business they were obliged to give exclusively to the claimant until 17 January 2020.

On this basis, IS Prime that says it suffered loss of approximately $15 million as a result, and it claims damages, an account and inquiry as to damages, and/or declaratory relief.

TF Markets applied for a stay of the claim pursuant to either s.9 of the Arbitration Act 1996 or s.49(3) of the Senior Courts Act 1981.

Mr Justice Baker stated “I heard the applications, sitting remotely via MS Teams, on 1 December 2020. By my Order of that date, I dismissed the applications and gave directions for the exchange of statements of case and the scheduling of a case management conference. Since the application under s.9 of the Arbitration Act 1996 gave rise to a point of general application and importance, I stated only brief conclusions at the hearing and said I would take some time to prepare and hand down a fuller written judgment. This is that judgment.”

By Title V, Chapter 44 of the 2020 Florida Statutes, “Mediation Alternatives to Judicial Action”, provision is made for the reference of claims to various forms of procedure other than simply litigation to judgment before the Florida State Courts. For that purpose, by section 44.1011(1), “”Arbitration” means a process whereby a neutral third party or panel, called an arbitrator or arbitration panel, considers the facts and arguments presented by the parties and renders a decision which may be binding or nonbinding as provided in this chapter” (Mr Justice Baker’s emphasis).

There is a definition of mediation in section 44.1011(b). Section 44.102 provides for mandatory reference to mediation in certain cases, if requested by one of the parties and if certain other conditions are satisfied; section 44.103 gives a general discretion in the court to “refer any contested civil action filed in a circuit or county court to nonbinding arbitration”; and section 44.104 provides for deferral in favour of “voluntary binding arbitration, or voluntary trial resolution”, with some management or supervision of the process, in the case of an agreement in writing between parties involved in a civil dispute to submit their controversy thereto.

Mr Chapman QC said he understood that this Floridian regime for alternative dispute resolution procedures is not new in 2020 but has been part of Florida State law for some time, and would have been when the Sale Agreement was concluded.

After the hearing, Ms Butler kindly furnished a link to the Florida Statutes 2016, and Chapter 44 indeed appears to have been the same then. It is tempting to speculate that this Floridian legislation might have been known to those responsible for drafting Section 7.7 of the Sale Agreement, given that it refers, in a contract subject to the exclusive jurisdiction of the Florida State Courts, to “non-binding arbitration”. However, Section 7.7 did not provide for something akin to the ‘nonbinding arbitration’ of section 44.103 of the Florida Statutes. The latter is a creature of court order, not agreement, and is in fact conditionally binding, despite the terminology.

The ‘nonbinding arbitration’ provided for by section 44.103 is one in which any hearing must be conducted informally, with presentation of testimony and evidence kept to a minimum, and matters being presented primarily through statements and arguments of counsel; and then by section 44.103(5), the resulting “arbitration decision”, “shall be final if a request for a trial de novo is not filed within the time provided by rules promulgated by the Supreme Court”; and “If no request for trial de novo is made within the time period, the decision shall be referred to the presiding judge in the case who shall enter such orders and judgments as are required to carry out the terms of the decision, which orders shall be enforceable by the contempt powers of the court, and for which judgments execution shall issue on request of a party”.

An issue raised in this case was, effectively, whether Section 7.7 is an arbitration agreement within the meaning of s.6(1). It was common ground (and Mr Justice Bajer agrees) that the fact the parties called the agreed process ‘arbitration’ rather than (say) ‘evaluation’ cannot determine that question (just as if they had called it ‘evaluation’, that could not determine that it was not arbitration within s.6(1)). Nonetheless, the fact that the word used in Section 7.7 is ‘arbitration’ means that in the main, the AAA Rules could be, and in this case have been, applied or operated meaningfully in a reference of disputes to ‘arbitrators’ under Section 7.7.

“Thus, a process conducted pursuant to Section 7.7 of the Sale Agreement might look quite like a process conducted under what would without doubt be an arbitration agreement, viz a reference of a dispute to arbitrators for it to be determined by them. For example, in the present case, the AAA Process (as defined by Mr Justice Baker below) has involved an exchange of written pleadings, case management hearings, scheduling orders with directions as to timetable and any number of other procedural matters, and document discovery, and is about to move on to witness depositions, an exchange of written expert evidence, and a 5-day final hearing.

However, a Section 7.7 process, and in this case the actual AAA Process, will not determine anything; any ‘award’ will not be binding. Does that mean it is not an arbitration (for the purposes of s.9 of the Arbitration Act 1996), the procedural trappings and terminology of arbitration notwithstanding.

Mr Justice Baker stated “I shall assume in the defendants’ favour without deciding that the meaning and effect of the agreement between Think and ISRA, by Section 7.7 of the Sale Agreement, that any dispute between them arising out of or relating to the Sale Agreement “shall first be submitted to non-binding arbitration under … the [AAA Rules]”, which is a matter governed by Delaware law, is that each was obliged not to commence court proceedings until the ‘non-binding arbitration’ process was completed.”

“Given Section 7.8 of the Sale Agreement, any court proceedings in respect of any such dispute should be in Florida State Court. Absent evidence that Florida law is any different to English law on this, I am entitled then to proceed on the basis that principles materially similar to those set out in Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm), [2015] 1 WLR 1145 and Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2246 (TCC), [2020] 1 AER (Comm) 7786 would be applied if, contrary to Section 7.7, ISRA had brought suit against Think, or Think had done so against ISRA, upon a claim falling within the scope of Section 7.7 without first completing a non-binding arbitration process in relation to it, and Think, respectively ISRA, had then applied to the Florida State Court for a stay” said Mr Justice Baker.

Procedural Chronology

The procedural chronology begins with a letter before action dated 17 December 2018 from Sachs Sax Caplan (“Sachs”), Florida attorneys acting for the claimant and ISRA (and their affiliated entities), to the first defendant, giving notice of inter alia the claimant’s contention that the Liquidity Addendum had been breached and indicating that proceedings in the United States District Court for the Southern District of Florida would follow in short order if that contention was disputed.

The evidence before me did not explain why Sachs referred to that US Federal Court rather than to the Florida State Court, but perhaps the explanation would involve US Federal Courts’ ‘diversity jurisdiction’, applied to what would have been a multi-party case with one claimant and one defendant that had agreed to Florida State Court jurisdiction (viz. ISRA and Think) and jurisdictionally diverse co-litigants, viz. an English co-claimant and English, Australian and Bermudan co-defendants.

Sachs’ letter received a reply dated 21 December 2018 from Taft Stettinius & Hollister LLP (“Taft”), Chicago attorneys acting for Think and the defendants. It asserted that some of the matters raised by Sachs’ letter had been resolved previously between the parties, and continued that, assuming arguendo that any of the claims asserted were not covered by the prior release, the threat of US Federal Court litigation was baseless and violated the Sale Agreement since Section 7.7 of the Sale Agreement required first a submission to non-binding arbitration.

That was wrong as regards any claim by the claimant against the defendants (or vice versa), since none of them was party to the Sale Agreement.
Taft sent a further response letter dated 23 January 2019, focusing on the merits of the claims indicated in Sachs’ letter, and also intimating possible cross-claims by the second defendant, against the claimant for alleged breaches of the Liquidity Addendum said to have caused loss of c.US$6 million, and against ISRA for alleged breaches of the Sale Agreement said to have caused loss of c.US$225,000.

By letter dated 11 February 2019 to the AAA, Sachs enclosed a demand for arbitration on the AAA’s standard form for requesting the commencement of arbitration under the AAA Rules. The letter and enclosed form named Think as intended respondent and named the intended claimant as “IS Prime Risk Services, Inc. n.k.a IS Risk Analytics, Inc., et al”.

It did not identify any co-claimant intended to be indicated by “et al”. The form cross-referred to an “attached letter dated December 21, 2018” for a “Brief Description of the Dispute”, and Mr Chapman QC said on instructions that the form had in fact attached Sachs’ letter before action (actually dated 17 December 2018). That to my mind does not mean that Sachs identified which entities, if any, other than ISRA were intended to be claimants, and I note that the AAA in response opened Case No.01-19-0000-4711, ISRA (only) vs. Think (only).

That AAA acknowledgment, assigning Case No.01-19-0000-4711 to the file, was dated 14 February 2019. On 27 February 2019 Sachs served on Taft a Statement of Claim before the AAA, with that Case No. This now made clear, by naming them as such, that the intention was for ISRA and the claimant to be claimants, and for Think and all three defendants to be respondents. The responsive “arbitration answering statement and counterclaim or joinder/consolidation request” form, and accompanying Counterclaim, filed by Taft dated 20 March 2019, followed suit as regards who was party to the process and raised no objection concerning the parties.

I shall call AAA Case No.01-19-0000-4711, thus constituted as proceedings between, on the one hand, ISRA and the claimant, and, on the other hand, Think and the defendants, “the AAA Process”. To the extent it has covered disputes, controversies or claims between ISRA and Think arising out of or relating to the Sale Agreement, the AAA Process can be seen to have been commenced pursuant to Section 7.7 of the Sale Agreement. To the extent, if at all, that it has covered other matters as between ISRA and Think, and in any event as regards the involvement of the claimant and the defendants, the AAA Process was ad hoc, coming into existence by the process of those matters and parties, respectively, being included in the process, with no prior agreement or obligation.

The Statement of Claim in the AAA Process opened with, “This is an action seeking damages … arising from breach of the provisions of certain Agreements entered into between the Claimants and the Respondents” and concluded with a demand for the “entry of final judgment for damages in favor of the Claimants and against the Respondents [Think and the Defendants were then named], jointly and severally, plus an award of attorney’s fees, arbitration fees and costs incurred in any arbitration or trial court proceedings pursuant to Florida law and pursuant to the provisions of the Agreements entered into between the parties to this action”.

That is inapt language for a statement of case before arbitrators, even if they were arbitrators whose award would be determinative. All the more so since the AAA Process was never intended to be and will not be determinative. I infer it was a Statement of Claim prepared by Sachs for the bringing of proceedings in the name of ISRA and the claimant against Think and the defendants in court in Florida, re-titled so as to be served instead in the AAA Process. That use of language notwithstanding, I repeat that it was common ground before me that the AAA Process was agreed to be, and will be, non-binding in its outcome.

This was confirmed and accepted by the ‘arbitrators’ in the AAA Process; for example in paragraph 1) of their Scheduling Order #1 after a first preliminary hearing on 23 April 2019, they recorded that “This panel has jurisdiction based on the parties’ arbitration clause and … the applicable arbitration rules are the [AAA Rules]. Pursuant to the parties’ arbitration agreement, this arbitration is non-binding.”
Under Scheduling Order #1, a final hearing in the AAA Process was fixed for 27-30 April 2020, to be followed by a ‘reasoned award’ within 30 days, i.e. by 30 May 2020.

By letter dated 2 September 2019, Reed Smith LLP, as solicitors for the second defendant, wrote to the claimant saying they were in the process of preparing court proceedings to be issued in this jurisdiction against the claimant. It is obvious even from the brief, general description of the nature of the proposed proceedings that the intention was to pursue matters that were by then already within the scope of the AAA Process. Harbottle & Lewis LLP, the claimant’s solicitors, replied dismissively the following day, describing Reed Smith’s letter as ‘vexatious and embarrassing’ because of its want of particularity and failure, therefore, to comply with any relevant pre-action protocol.

They did not, however, object to the idea that if the second defendant did commence litigation here, it would be doing so while the AAA Process continued in parallel. Harbottle & Lewis closed with an invitation to Reed Smith to address future correspondence to them, “when and if you are ready to articulate any claim on behalf of your client”.

In an exchange with the AAA in mid-September 2019, Sachs confirmed that ISRA and the claimant did not wish to engage in mediation. (The AAA Rules make provision for mediation, but only if all parties wish it, where the sums at stake exceed US$75,000.)

The AAA Process suffered delays, the detail of which does not matter. By Scheduling Order #6 in the AAA Process, dated 5 February 2020, a revised timetable was set leading to a final hearing on 14-16, 21-22 October 2020, with a ‘reasoned award’ again to follow within 30 days, i.e. by 21 November 2020.

By letter before action dated 17 April 2020 sent to the claimant, Stephenson Harwood LLP, as solicitors for all three defendants, set out their intended claims against the claimant, to be pursued by court proceedings in this jurisdiction. Stephenson Harwood were explicit that the proposed proceedings would cover ground being covered in the AAA Process.

They offered that “to prevent any jurisdictional tensions arising, upon the commencement of any UK court proceedings, our client [sic.] will be seeking a stay of the Non-Binding Arbitration, pending formal determination of the issue by the courts of England and Wales”, and proposed that the reasonable time for a response to their letter under the pre-action protocol should be 28 days, “Given the extensive correspondence on these issues, in addition to the exchange of evidence in the Non-Binding Arbitration”.

The judgement in its full and complete form can be found by clicking here.