London Maritime Arbitration

Clare Ambrose; Karen Maxwell and Michael Collett KC

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CHAPTER 7 Stays of English court proceedings brought in breach of an agreement to arbitrate

A. Introduction

7.1 This chapter is about the English court’s jurisdiction under section 9 of the 1996 Act to grant stays of English court proceedings and also its inherent jurisdiction to stay such proceedings under powers arising outside statutory rules. A stay is the legal term for a suspension or halt of proceedings. Injunctions stopping foreign proceedings and arbitral proceedings are dealt with in . Arbitrators can grant stays of their own arbitral proceedings in part or whole, for instance on the parties’ request pending settlement negotiations. Stays granted by arbitrators arise under their powers over procedure and must be justified as within their duty to decide cases justly and efficiently. For this reason an arbitrator’s stay of arbitral proceedings should not usually be for an indefinite period. By contrast a court’s stay of its proceedings will usually be a final remedy. 7.2 The court’s jurisdiction to stay proceedings usually arises where a party has commenced proceedings in breach of an arbitration agreement. The fact that parties have agreed to refer their disputes to arbitration does not mean that the English court lacks jurisdiction to resolve those disputes or that a judgment given on that dispute is unenforceable. The defendant can choose to allow the proceedings in court to continue (and will thereby usually waive its right to arbitrate the dispute raised) or it can apply for a stay of the proceedings. A stay granted by the court is the most effective remedy for this type of breach of an arbitration agreement since a court will not make an order requiring the parties to perform the arbitration agreement.1 Damages are unlikely to be an effective remedy since they may be nominal unless a party’s costs have been increased by reason of the disputes going to court. 7.3 The practical effect of a stay of proceedings is to force the claimant to refer the dispute to arbitration and the courts have firmly rejected any suggestion that this would contravene

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the claimant’s right of access to court under Article 6 of the European Convention on Human Rights.2 7.4 The court’s primary jurisdiction to grant a stay arises by statute under section 9 of the 1996 Act. This statutory jurisdiction is mandatory in two senses. First, the parties cannot contract out of it.3 Secondly, if an applicant for a stay can bring himself within section 9 then the court is required to grant the stay; it has no discretion to decline to stay the proceedings or to make the stay subject to conditions. The court retains an inherent non-statutory jurisdiction to stay proceedings but this would only apply in cases where there is no statutory power.

B. Mandatory stays under section 9 of the 1996 Arbitration Act

7.5 Section 9 of the 1996 Act is intended to give effect to international obligations under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The mandatory power to stay proceedings under section 9 applies to all written arbitration agreements regardless of the nationality of the parties.4 7.6 Section 9 has removed the court’s jurisdiction to grant summary judgment where a claim falls within an arbitration clause but there is no arguable defence to it.5 Previously summary judgment was often used as a speedy way of recovering indisputable claims for freight or demurrage or the price of goods, notwithstanding the existence of an arbitration agreement. Now the parties must arbitrate to recover such claims. 7.7 Section 10 of the 1996 Act also requires a stay of proceedings where one party brings interpleader proceedings because he is faced by conflicting claims from other parties and does not know who to account to. For example a voyage charterer may be faced by competing claims for freight from a shipowner and time charterer. If the issue between the competing claimants (e.g. the shipowner and time charterer) is subject to an arbitration clause then the court will direct that the issue between them is determined by arbitration unless there are reasons why the court would not have granted a stay of proceedings brought by the competing claimants.

The basic requirements for a stay

7.8 Section 9 provides that:

(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court to stay the proceedings so far as they concern that matter.
(2) An application may be made notwithstanding that the matter is to be referred to arbitration only after the exhaustion of other dispute resolution procedures.
(3)

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An application may not be made by a person before taking the appropriate step (if any) to acknowledge the legal proceedings against him or after he has taken any step in those proceedings to answer the substantive claim.
(4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.
(5) If the court refuses to stay the legal proceedings, any provision that an award is a condition precedent to the bringing of legal proceedings in respect of any matter is of no effect in relation to those proceedings.6

7.9 In summary, the applicant under section 9 (typically the defendant) must establish that;

• it is party to an arbitration agreement in writing (or a person claiming through or under such a person); and
• it is a party against whom legal proceedings are brought in respect of a matter agreed to be referred under that arbitration agreement; and
• the application is made before it has taken any step in those proceedings to answer the substantive claim.

7.10 If these three factors are established then the burden of proof shifts to the party opposing the stay application (typically the claimant) to satisfy the court of at least one of the matters under section 9(4), namely that the arbitration agreement is null and void, inoperative or incapable of being performed.

The requirements under section 9(1) of the 1996 Act

“A party to an arbitration agreement”

7.11 The most common issues on an application under section 9 are as to whether there is an applicable arbitration agreement and whether the applicant is a party to that arbitration agreement. These will typically be issues going to the substantive jurisdiction of any arbitral tribunal that has already been appointed or may be appointed in the future. Issues of jurisdiction are considered in but a threshold question commonly arises in stay applications as to whether the court should decide these issues or leave them to the tribunal. The correct approach to that question is considered below. 7.12 Under section 82(2) of the 1996 Act a party to an arbitration agreement is defined as including any person “claiming under or through a party to the agreement”. The court will take a purposive approach. For example, the assignee of a debt arising out of a contract containing an arbitration clause7 and a party claiming under the Third Parties (Rights against Insurers) Act8 have been held to fall within this category. However, a legal or commercial connection to the party to the arbitration agreement will not be sufficient.9

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“A party to an arbitration agreement against whom legal proceedings are brought… in respect of a matter… to be referred to arbitration”

7.13 A stay is only available to a party against whom civil proceedings in the High Court or county court have been brought,10 whether by claim or counterclaim, including third party contribution proceedings.11 It is probably not available to someone who has applied to be made a party to the proceedings because section 9 is only intended to benefit those who have been sued in relation to a matter agreed to be arbitrated.12 7.14 Where a counterclaim falling within the scope of an arbitration agreement is relied on as a defence of set-off to a claim that is outside that agreement then issues may arise as to whether the counterclaim should be stayed. It is beyond the scope of this book to identify the relevant types of set-off and their legal implications. In summary, the existing position under English law is that such a situation should arise rarely because most arbitration clauses will be construed to cover all disputes arising out of the parties’ transaction.13 However, where it does arise, a counterclaim made by way of transaction set-off will not be stayed under section 9, most probably because the set-off is treated as a defence rather than the bringing of legal proceedings.14 7.15 Section 9(2) makes clear that a party can apply for a stay even where the dispute has not yet reached the stage when it can be referred to arbitration because the parties have agreed to use other dispute resolution procedures first, e.g. expert determination or mediation.15 7.16 The question of whether the proceedings are brought in respect of a matter agreed to be arbitrated raises jurisdictional issues as to the existence, enforceability and scope of the arbitration clause. This type of issue is discussed in but the question of whether the court or the tribunal will resolve such an issue is considered below. The question of whether proceedings are “in respect of” a referred matter will depend on the substance of the dispute rather than the formal nature of the proceedings or the particular formulation at the outset.16 The court may consider the questions that will foreseeably arise in the proceedings and it is

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not necessary for all the matters raised in the proceedings to be “referred matters” within the arbitration agreement.17 It may even be appropriate for the court to assess the scope of an intended defence for the purpose of deciding whether referred matters are in issue.18 7.17 Section 9 has been invoked in the context of applications for injunctions or other measures in support of arbitration available from the court. However, the courts have made clear that applications for injunctions (whether under section 4419 of the 1996 Act or under section 3720 of the Senior Courts Act 1981) are not within the scope of section 9 since by agreeing arbitration in London the parties have agreed to the supervisory jurisdiction of the English courts.21

“A matter to be referred”

7.18 Arbitration clauses often provide for “disputes” or “differences” arising out of the contract to be referred to arbitration. (For the purposes of the 1996 Act a dispute includes any difference.)22 The term dispute is to be construed on its normal meaning and is not defined legalistically. Under the 1996 Act the court is concerned only to identify a matter within the scope of the arbitration agreement; it will not assess the merits or arguability of the dispute raised.23 The court may grant a stay of those parts of the proceedings that concern the matter agreed to be referred to arbitration and this may require a difficult delineation of the subject matter of the proceedings.24 7.19 Before the 1996 Act came into force it was generally accepted25 that if there was no arguable defence to a claim then there was no “dispute” referable to arbitration. The wording of the old law reflected this and the claimant could apply for summary judgment. However, the 1996 Act excluded the wording that supported this approach and the Court of Appeal in The Halki 26 firmly decided that a court could no longer refuse a stay on the ground that the claim is indisputable or there is no arguable defence to it.

In The Halki the claimants entered into a tanker voyage charter containing a clause referring any disputes arising from the charter to London arbitration. The claimants commenced proceedings to claim demurrage. The defendants issued an application for a stay under section 9 which the claimants countered by claiming summary judgment for demurrage which they said was indisputably due. The defendants did not admit the sum was due but raised no real answer to it. The defendants contended that there was a dispute between the parties within the

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meaning of the arbitration clause because they did not admit that they were liable for the demurrage. The claimants said there was no dispute because the claim was indisputably due in that the defendants had no arguable defence to it. Clarke J and the Court of Appeal decided that there was a dispute within the meaning of the clause and that the entire claim should be stayed.

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