England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
NEWCASTLE UPON TYNE DISTRICT REGISTRY
MERCANTILE LIST (sitting at Leeds)

		24 October 2008

1. Introduction

1. There are before the Court three applications – one written and the other two made orally at the hearing. The formal application is an application by Delta Reclamation Limited ("Delta") for a stay under section 9 of the Arbitration Act 1996 ("the Act") of the Counterclaim filed by Premier Waste Management Limited ("Premier") on or about 8^th August 2008. In addition Delta made an oral application that their claim be stayed under CPR 3.2(f) so as to allow the issues in dispute between the parties to determined in one arbitration. These applications are resisted by Premier principally on the ground that as Delta have elected to commence court proceedings in relation to the dispute, they should not now be allowed to change their minds and in effect have the disputes resolved by arbitration. If contrary to their submission the disputes are to be resolved by arbitration Premier orally invited the Court to exercise its powers under section 18 of the Act and either appoint an arbitrator or substitute the President of the Chartered Institute of Arbitrators for the person nominated in the Agreement as the nominating body.

2. Representation

2. Delta has been represented before me by Alexander Hickey instructed by Sintons of Newcastle upon Tyne. Premier has been represented by David Cavender instructed by Muckle LLP ("Muckle") also of Newcastle upon Tyne.
3. Both Counsel produced full and helpful skeleton arguments and made clear and concise oral submissions in a by no means straightforward application. I am most grateful to them.

3. The Facts

4. There was no dispute as to the facts material in relation to the matters to be decided. Indeed Premier did not find it necessary to file any evidence though they did produce a number of documents.

3.1 The Agreement.

5. On 21^st December 2006 the parties signed an agreement regulating the storage and processing of UTDAR (an acronym for "Used Tyre Derivative Aggregate Replacement") at the Joint Stock Quarry, near Coxhoe. Many of the terms were summarised in an ex tempore judgment I gave on 20^th December 2007 in relation to an application by Delta for mandatory injunctions against Premier. It is not necessary for me to repeat them.
6. It is common ground between the parties that the agreement contained in clause 27.3 an arbitration clause in wide terms submitting "all disputes arising out of the agreement to a single arbitrator to be mutually agreed between the parties or … nominated by the President… of the Chartered Institute of Waste Management".

3.2 The Disputes

7. By early December 2007 disputes had arisen under the contract. By that time Delta had taken delivery of and processed some 7,000 tons of tyres into UTDAR. This was stored on a flat area of Joint Stocks Quarry which Delta contended was within Premier's control. In any event Delta complained that it could not accept any further tyres for processing and the agreed storage and processing areas were full of UTDAR. It complained that Premier had failed to provide Delta with sufficient storage space for processed UTDAR, had failed to haul the processed UTDAR from the storage areas to the cell construction areas and to accept UTDAR in accordance with the agreement.
8. Premier had a number of answers to these allegations. It contended that the agreement was at an end – indeed it never came into existence because the necessary licence from the Environmental Agency was not granted within 4 months of the signing of the agreement. By letter dated 6^th December 2007 Premier served a notice on Delta withdrawing from the agreement. Any stock piling of UTDAR by Delta in the absence of the necessary licence was done at Delta's own risk. In any event Premier did not accept that under the terms of the agreement they were obliged to or had ordered any UTDAR. In the result there was no contractual obligation to take delivery of any UTDAR. There was a further side issue as to whether the processed UTDAR complied with the specification in the agreement in 2 respects. This in turn led to a further dispute as to the extent of any variation of the contract. Finally Premier was the subject of threatened enforcement action as a result of the number of tyres on site.
9. Thus by 7^th December 2007 Delta were seeking to compel Premier to remove processed UTDAR from the agreed storage and processing area. Premier on the other hand contended the agreement was at an end, that there was no obligation on them to remove UTDAR from the agreed areas, and that to comply with Delta's wishes would necessarily involve further breaches of the criminal law and further enforcement action.

3.3 The proceedings.

10. By the end of November 2007 the parties' solicitors were in correspondence. On 29^th November 2007 Sintons wrote to Muckle. In the letter Sintons stated that Delta had little alternative but to commence proceedings and to seek an urgent interim injunction compelling compliance with the contract until trial/arbitration. The letter went on to state that Delta were content to pursue the matter either in court or by way of arbitration and use the powers granted to the court under section 44 of the Act. The letter invited Muckle to indicate which method of disposal Premier wished to adopt. Muckle did not respond to that letter.
11. It has at all times been common ground that the disputes between the parties were within the arbitration clause and thus the method agreed by the parties for the resolution of the disputes was arbitration supplemented as appropriate by applications to the court under the Act.
12. It is perhaps worth considering the differences between arbitration proceedings and ordinary Court proceedings.
13. If in arbitration proceedings a party wishes to apply for an interim injunction, he must do so by way of an "Arbitration claim form." By so doing the party is maintaining its right to arbitrate but is merely seeking the interim assistance of the Court pursuant to the terms of the Act and CPR 62.

1. Pursuant to Part 62.2 an "arbitration claim" includes, "any other application affecting arbitration proceedings (whether started or not)…." This clearly includes an application for an interim remedy such as an injunction pursuant to s. 44 of the Act.

2. Pursuant to Part 62.3 an "arbitration claim", "...must be started by the issue of an arbitration claim form in accordance with Part 8 procedure. This is a mandatory provision as confirmed by paragraph 2.1 of the PD which provides:

3. "An arbitration claim under the 1996 Act ……..must be started in accordance with the High Court and County Court (Allocation of Arbitration Proceedings) Order 1996 by the issue on an arbitration claim form."

4. Pursuant to Part 62.4 the arbitration claim form must, inter alia, set out the remedy claimed and specify which section of the Act is relied on.

14. Delta did not follow this procedure. Instead, Sintons:

1. issued and served a generally endorsed Part 7 Claim Form dated 7^th December 2007 seeking:

1. "…interim and final Mandatory Injunction.

2. "…Further and in the alternative damages for breach of the said written agreement and interest pursuant to s.35A Supreme Court Act 1981.

2. Served a Particulars of Claim, claiming inter alia, damages, special damages and a final mandatory injunction. The special damage claimed was the loss of operating profit at the rate of £35 to £40 per tonne for the duration of the agreement.

3. Issued a Part 23 application notice seeking an injunction.

15. It is plain therefore that Delta had at that stage elected to issue ordinary proceedings rather than claim an injunction under section 44 of the Act within arbitration proceedings.

3.4 The injunction application

16. The injunction application was heard in Leeds on 20^th December 2007. At the hearing Delta was represented by Mr Morton the counsel who had settled the Particulars of Claim. Premier was represented by Mr Cavender. I rejected the application for an injunction. There is a transcript of the judgment and thus it is not necessary for me to repeat my reasons in any detail. In summary I thought that Delta's case would probably fail and that in any event there was a far greater risk of injustice if I granted the injunction than if I refused it.
17. For present purposes it is significant that there were a number of references to the Act in submissions, in oral argument and in the judgment:

1. In his skeleton argument Mr Cavender dealt with the question of jurisdiction under paragraphs 11 – 19. In summary he submitted:

1. That the agreement was governed by an arbitration clause

2. That the Court needed to be satisfied that the case was one of urgency within section 44(3) of the Act.

3. In the light of the decision of the Court of Appeal in Celetem v Roust Holdings [2005] 1WLR 3555 and the facts of the case is must be very doubtful whether there is the necessary urgency or whether the injunction could "preserve contractual rights".

4. The Court should keep in mind the narrow basis of such jurisdiction it had.

2. In discussions between myself, Mr Cavender and Mr Morton (pp 24 to 26 of the transcript) Mr Morton acknowledged that he had no answer to an arbitration. He accepted that the matter was governed by section 44(3). Mr Cavender acknowledged that he had not taken any steps in the proceedings that would disentitle him to a stay.

3. In the course of Mr Cavender's oral submissions (pp 38 to 39 of the transcript) Mr Cavender repeated his written submissions. In particular he made the point that any injunction granted by the Court had to be for the purposes of facilitating the arbitration and on the enforcement of the award. He made the point that there was no urgency.

4. I referred to the arguments in paragraph 5 of the judgment. However in paragraph 35 I declined to rule on the arguments. Thus the decision to refuse the injunction was not based on the argument that there was limited jurisdiction under section 44(3) of the Act.

18. Mr Hickey submitted that it was clear that at the hearing Premier indicated to the Court that it was intending to apply for a stay under section 9 so that the matter could be determined by arbitration. That was the basis on which the reference to section 44(3) was relevant. In my view there is force in that submission.
19. He further submitted that Premier should not now be able to change its position and seek to have the matter resolved by the courts.

3.5 Events following the hearing on 20^th December 2007.

20. The only order made on 20^th December 2007 was the dismissal of the application with costs and an order for an interim payment of £25,000 on account of costs. That £25,000 has been paid. It has further been agreed that the payment is in full and final settlement of the order for costs so that there is no sum outstanding in relation to the costs order.
21. Premier did not file an acknowledgment of service following the judgment and did not file a Defence or Counterclaim within the time specified in the Rules. It might have been possible for Delta to have signed judgment for damages to be assessed but in the light of comments that I made as to the merits of the claim I do not find it surprising that they did not attempt to do so.
22. No other steps were taken in the proceedings until 7^th July 2008. On that date Sintons served on Premier a notice to arbitrate the dispute. It is not necessary to refer to the notice in detail. It is, however to be noted that the notice suggests that damages of £3,546,791 are sought. The notice suggested the names of 2 potential arbitrators and invited Premier to join with Delta in the appointment of one of the two suggested arbitrators within 28 days.
23. Premier did not reply to that letter until 8^th August 2008. On that date Muckle wrote to Sintons challenging the right to arbitrate. Muckle pointed out that the proceedings are still extant. Delta had chosen to litigate rather than rely on the arbitration clause. The letter included the Defence and Counterclaim then being filed at Court. No permission was sought for late filing of the document but Mr Hickey expressly declined to take that point. The actual sealed Defence and Counterclaim was received on 18^th August 2008.
24. Without going into detail the Defence relies in substance on the points outlined above. In paragraph 15 Premier expressly seek to set off any sums awarded in the Counterclaim against the damages sought. The Counterclaim is a very short document. It seeks only a declaration that Premier was entitled to terminate the agreement as a result of recital F. In addition it alleges that Delta was obliged to remove the 7,000 tonnes of UTDAR. It has failed to do so and Premier seeks the costs of removal and disposal estimated to be £460,000.
25. On 22^nd August 2008 without taking any other steps in the Counterclaim Delta applied for a stay of the Counterclaim. In the grounds in support of the application Delta invited the court to stay its own action on the ground that there is no justification for parallel court and arbitration proceedings.
26. There followed some correspondence with President of the Chartered Institute of Waste Management. To date no appointment has been made.

4. General Observations

27. Before considering the detailed submissions that have been made under the Act it is convenient to make a number of general observations about the nature of the application.

1. This is a case where there is an arbitration clause and where it is common ground that the disputes fall within that clause. Thus the parties have agreed in advance that arbitration rather than litigation is the appropriate way of resolving the disputes.

2. Whilst it is true that Delta initially chose to litigate rather than arbitrate that fact cannot of itself be determinative of whether the dispute be litigated or arbitrated. If, for example, Premier had chosen to apply for a stay under section 9 of the Act it is inevitable that the application would have succeeded. Delta would then have had to commence arbitration proceedings. It could not have been suggested that the stayed action could prevent or operate as a defence to the arbitration proceedings.

3. Premier chose to fight the interim injunction application on the basis that they were going to make an application for a stay under section 9 of the Act so that the disputes could be submitted to arbitration. Otherwise section 44(3) of the Act would not have been relevant. Furthermore Premier took no steps in the action between the date of the hearing and the date on which they received the arbitration notice. It did not even file an acknowledgment of service. Thus, whilst I agree with Mr Cavender that Premier are not estopped from seeking to litigate rather than arbitrate, Premier are in no way prejudiced by the course that has been adopted by Delta other than in the expenditure of costs prior to the service of the arbitration notice.

4. In those circumstances it is difficult to see that the course that Delta propose to adopt can be described either as an abuse of the Court process or of the arbitration procedure. I can well see that if significant steps had been taken in the litigation it could be argued that there was some form of abuse of process. Although I was not shown any authority I suspect that the Court would have ample power to deal with any such abuse. However on the facts of this case there is no abuse of process in Delta seeking to arbitrate.

5. The Arbitration Act 1996

28. Section 9 of the Act provides:

Stay of legal proceedings

(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 in which the proceedings have been brought 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) An application may not be made by a person before taking the appropriate procedural 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.

29. In his helpful submissions Mr Hickey made a number of points about section 9:

1. The application under subsection (1) may only be made by a person against whom legal proceedings are brought. Thus it is not open to Delta to make an application in respect of its own claim. However Premier's Counterclaim is a separate claim and there is no reason why that should not be stayed under section 9.

2. Whilst there is no power to stay the claim under section 9 there is ample power to stay it under CPR 3(2)(f). It is appropriate to grant a stay to avoid parallel proceedings. It would in any event be open to Delta to discontinue the proceedings. It is conceded that that Delta would have to pay Premier's costs. However such costs are likely to be small in that the whole of the costs of the application for an injunction have been paid. Such costs should not include the costs incurred after the service of the notice to arbitrate.

3. The application for a stay of the Counterclaim was made before any step was taken in the Counterclaim. It is accordingly not barred by the provisions of subsection (3).

4. The Court has no discretion to refuse a stay under subsection (4). Unless it is satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed the Court must grant a stay.

5. In the circumstances of this case the arbitration agreement is not null and void, inoperable or incapable of being performed. It follows that a stay must be granted.

30. In answer to these submissions Mr Cavender made a number of points:

1. Delta have engaged the jurisdiction of the Court to determine their claim and it is thus too late for them to rely on the binding nature of the arbitration agreement.

2. In reality Delta are seeking a stay of both their claim and Premier's Counterclaim. This point should not be lost. Indeed he submitted that this was a case of the tail (counterclaim) wagging the dog (claim). He submitted that the Counterclaim was parasitic to the Claim.

3. He did not suggest that this arbitration agreement was null and void or incapable of being performed but he submitted that in the circumstances of this case it was or should be treated as inoperable within the meaning of subsection (4). He referred me to Downing v Al Tameer Establishment [2002] EWCA Civ 721 which he accepted was not on all fours with the present case.

6. Discussion

31. Although my mind has wavered on a number of occasions during the course of the hearing I have in the end come to the clear conclusion that Mr Hickey's submissions are to be preferred.
32. For reasons I have set out above it is to my mind too simplistic an approach to assert that the existence of the proceedings means that it is necessarily too late for Delta to rely on the arbitration clause. Otherwise they would not have been able to arbitrate if Premier had successfully applied for a stay.
33. I agree with both Counsel that the analysis in the Downing case is of assistance. That case involved a contractual dispute which arguably involved an arbitration clause. In correspondence prior to the issue of proceedings the Defendant asserted that there was no contract between the parties. The Court of Appeal held that that assertion was a repudiation of the agreement to arbitrate. Accordingly the Claimant issued proceedings in Court. The Court of Appeal held that the issue of those proceedings amounted to an acceptance of the repudiatory breach with the result that the agreement to arbitrate was at an end. Accordingly the application by the Defendant for a stay failed as the agreement had become inoperable.
34. It is to be noted that the Court of Appeal approved the application of ordinary contractual principles to the agreement to arbitrate. This is clear from paragraph 25 of the judgment of Potter LJ (as he then was). In paragraph 32 he said this:

it is of course the position that the existence of an arbitration agreement does not prevent either party from instituting court proceedings in respect of the underlying dispute. That is a principle based upon the rule that the parties may not agree to oust the jurisdiction of the court: see Scott –v- Avery (1856) 5HL Cas 811. However, it is inaccurate to speak of a right to commence proceedings in any more general sense. Whether or not such commencement is a breach of the arbitration agreement by the party instituting the proceedings will depend upon the circumstances. If satisfied that a breach is involved, as it usually will be, then the court will grant a stay. If not so satisfied, but the position is arguable, the court will grant a stay on the basis that the issue raised is not clear and that the arbitrator has the power to rule upon his own jurisdiction (see s.30 of the 1996 Act). However, the fact that a party is in broad terms free to commence proceedings despite the existence of a valid arbitration clause, at the risk of stay being granted, does not mean that, in the circumstances of a particular case and in the light of pre-writ correspondence, such commencement cannot constitute an acceptance of the defendant's previous refusal to arbitrate, so that the court is satisfied that a stay should not be granted.

35. In this case there is nothing in the pre action correspondence which amounts to a repudiatory breach of the arbitration agreement by Delta. The letter before action plainly recognises the efficacy of the arbitration agreement. It is highly arguable that the issue of the Part 7 Claim Form amounted to a breach of the arbitration agreement, but there is nothing in this case that amounts to an acceptance of that breach so as to bring the arbitration agreement to an end. In particular Premier defended the application for interlocutory relief on the basis that it was preserving its right to apply for a stay under section 9 and has taken no steps in the action after that. In those circumstances I do not think that the arbitration agreement had become inoperable on the date that the notice to arbitrate was served.
36. Whilst I agree with Mr Cavender that part of the Counterclaim is parasitic to the Claim, the claim for £460,000 damages for removal of the UTDAR is a separate claim. Thus I reject the submission that the whole of the Counterclaim is parasitic.
37. In my view therefore the Court is bound to grant a stay of the Counterclaim under section 9(4) of the Act.
38. For the reasons given by Mr Hickey it is plainly convenient to stay the claim under CPR 3.2(f). The stay will be on the terms that Delta pay Premier all of its costs of the claim up to and including the date of service of the Notice to Arbitrate. I have not heard argument on the costs of the application for a stay but it is difficult to see how Premier can resist an order for payment of Delta's costs.

7. The Appointment of the Arbitrator.

39. There is no formal application for the Court to appoint an arbitrator or to substitute a different appointer. I have been shown some correspondence including a letter dated 30^th September 2008 from the Chief Executive Officer on behalf of the President of the Chartered Institute of Waste Management.
40. For my part I do not regard that letter as being a refusal to appoint. Furthermore the President of the Chartered Institute of Waste Management believed he was presented with contradictory instructions and the parties were in the middle of a dispute as to whether there should be an arbitration at all. It may be that as a result of this decision he will have no difficulty in making an appointment.
41. As Mr Hickey pointed out the parties agreed to the President of the Chartered Institute of Waste Management as the appointer of the arbitrator. In my view the time has not yet arrived when the court should interfere with that agreement either by substituting an appointer or by making the appointment itself.
42. I accordingly refuse the informal application by Premier to make any order.

JOHN BEHRENS

Friday 24 October 2008