The court also ruled that the time period set out in CPR Part 11 for challenging the court's jurisdiction is not applicable to arbitration.
In this case, which was commenced by the liquidator of Bilta (UK) Ltd (Bilta), the sixth defendant (Jetivia) applied for a stay of the legal proceedings pursuant to s9(1) of the Arbitration Act 1996 (the Act) on the basis that there was a binding arbitration agreement between the parties to the dispute. The dispute arose from a number of transactions relating to the European Emissions Trading Scheme Allowances (ETSAs) which Bilta claimed were part of a VAT carousel fraud scheme that had led to its insolvency. Jetivia claimed that all the transactions it concluded with Bilta in respect of the ETSAs were governed by a framework agreement containing an arbitration clause.
Following the commencement of proceedings, Jetivia filed an acknowledgement of service after which there was a series of communications between the parties agreeing on several extensions to the period for the filing of Jetivia's defence. This culminated in Jetivia applying to the court for a consent order granting a further extension of time, which the court made (the Consent Order). When Jetivia subsequently applied for a stay of proceedings pursuant to s9 of the Act (the Stay Application), Bilta objected that Jetivia had either lost or waived its right to make the Stay Application. Other objections were also advanced by Bilta but Sales J directed that these would be tried as preliminary issues at a future date.
Time limits applicable to stay applications
Bilta's first challenge to the Stay Application was that it was out of time as the period for an application to stay proceedings pursuant to s9 of the Act was governed by Part 11 of the Civil Procedure Rules (CPR Part 11). CPR Part 11 requires a challenge to the court's jurisdiction to try a claim to be made within 14 days of filing an acknowledgement of service.
In rejecting this submission, Sales J held that to apply CPR Part 11 to s9 of the Act would involve a misreading of that section. Section 9(1) provides that a party to an arbitration agreement may apply to the court for a stay of proceedings commenced in respect of a dispute covered by that agreement. Section 9(3) provides that such an application must be made after the party has acknowledged service but before it takes "any step in those proceedings to answer the substantive claim". Sales J went on to state that, by defining the points in time before and after which an application for a stay can be made, s9(3) must be read as implicitly defining the period in which such an application may be made.
The judge found that there is nothing in the part of the Civil Procedure Rules applicable to arbitration (Part 62), nor in the White Book commentary thereto, which suggests that CPR Part 11 should apply to the Stay Application. Sales J noted that the singular reference to arbitration in the White Book's commentary on CPR 11.1.1 is unsupported by any authority and should not be relied upon. Sales J continued that, in his view, the "procedural code" set out in s9 of the Act should not be read as being subject to other procedural time limits not set out in that section.
Had Jetivia taken a "step in the proceedings'?
Sales J also dismissed Bilta's alternative argument that, by applying for the Consent Order, Jetivia had taken a "step in…proceedings to answer the substantive claim" within the meaning of s9(3) of the Act and had, therefore, waived its right to make the Stay Application. The judge said that his inclination would have been to adopt a clear rule that the right to apply for a stay of proceedings is only lost when a substantive defence is served. This would have allowed for the proper investigation and consideration of claims without the risk of the right being lost for a technical, procedural reason. He concluded, however, that authority binding upon him precluded this approach.
In Capital Trust Investments Ltd v Radio Design TJ AB [2202] EWCA Civ 135 the Court of Appeal held that, on a proper reading of Patel v Patel [1999] 1 All ER (Comm) 923, the old case-law decided under the 1975 and 1950 Arbitration Acts applied to determine what constituted a "step in proceedings". The test adopted in Patel was that "a "step in proceedings" must be one which impliedly affirms the correctness of the proceedings and the willingness of the Defendant to go along with a determination by the courts of law instead of arbitration". Sales J noted that Otton LJ approved the principle that "the right to apply for a stay will be lost if the Defendant in the judicial proceedings has expressly or impliedly represented that he does not intend to refer the…dispute to arbitration".
On the facts, Sales J found that Jetivia had in correspondence expressly referred Bilta to the arbitration agreement and reserved its rights to dispute the jurisdiction of the English court. This reservation was contained in a letter which, among other things, requested further information about the claim and the basis on which Bilta considered it was entitled to pursue court proceedings. Subsequent correspondence did not repeat this reservation of rights but called for an answer to the substantive points raised and agreed to two extensions of time. Against this background there was no objective basis for saying that the application for the Consent Order could constitute a waiver by Jetivia of its right to make the Stay Application or an unequivocal representation to Bilta that it would not contest the court's jurisdiction. On the facts, the judge distinguished an old House of Lords case, Ford's Hotel Co Ltd v Bartlett [1896] AC 1, which held that a Defendant who took out a summons seeking an order for an extension of time was precluded from applying for a stay under the Arbitration Act 1889. In that case there had been no reservation of rights.
In Sales J's judgment it was not necessary for a party to communicate its reservation of rights to the court, since s9 of the Act is principally intended to govern the relations between the parties. It was, therefore, sufficient that Jetivia had clearly indicated to Bilta that it reserved its right to make the Stay Application and that this was known to both parties when Jetivia put in the application for the Consent Order. Bilta's objections that Jetivia had lost or waived its right to make the Stay Application were, therefore, rejected.
Comment: The outcome on the facts notwithstanding, Bilta makes it plain that parties and their solicitors should consider very carefully before making any application to the court, for an extension of time or otherwise, whilst still considering whether to apply for a stay of proceedings pending arbitration.
The question, of whether a procedural step such as applying for an extension of time constitutes a "step in the proceeding" will involve an investigation of the specific conduct of, and representations made by, one party to the other. Thus, although Sales J thought it proper that a party to proceedings seek to agree an extension of time for serving its defence with the other side, so as to allow a proper investigation of the case against it, Ford's Hotel Co means that it is critical for a party expressly to reserve its rights in correspondence with the other side. In Bilta the single reservation was found to be sufficient, apparently since all subsequent correspondence related to matters raised in that initial letter containing the reservation. Since this will not always be the case, however, it may be advisable for a party to reserve its right to apply to the court under s9 of the Act in all correspondence.
Finally, Bilta shows that the commentary to the Civil Procedure Rules in the White Book should be approached with some caution by litigants and their advisers, especially where no authority is cited for a proposition.
Further information
This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution. For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 (0)20 3088 3710.