Staying court proceedings brought in breach of an arbitration agreement (Arbitration Act 1996, s 9)
Harlow Signs Ltd supplied illuminated signage to Kestrel Retail Ltd under a written contract governed by English law. Clause 18 provides that any dispute arising out of the contract shall be referred to arbitration in London. A dispute arises about the quality of the signs and Kestrel issues a claim against Harlow in the County Court for £85,000. The claim form and particulars of claim have just been served on Harlow, which wants the dispute decided by arbitration as the contract provides. There is no suggestion that clause 18 is invalid.
What is the best advice to give Harlow?
Choose one answer to see the reasoning.
Worked answer
Correct answer C: Acknowledge service and, before any step to answer the substantive claim, apply for a stay, which must be granted unless the agreement is null and void, inoperative or incapable of being performed.
THE RULE TO REMEMBER
A party sued in breach of an arbitration agreement may, after acknowledging service but before any step to answer the substantive claim, apply for a stay, which the court must grant unless the agreement is defective.
Staying court proceedings brought in breach of an arbitration agreement (Arbitration Act 1996, s 9)
Section 9 of the Arbitration Act 1996 allows a party to an arbitration agreement against whom legal proceedings are brought, in respect of a matter which under the agreement is to be referred to arbitration, to apply to the court in which the proceedings have been brought for a stay. By s 9(3) the application may not be made before the applicant has taken the appropriate procedural step to acknowledge the proceedings, or after it has taken any step in those proceedings to answer the substantive claim. Harlow should therefore file an acknowledgment of service and then apply promptly, without filing a defence. By s 9(4) the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed. Nothing suggests clause 18 is defective, so a properly timed application should succeed and the dispute will go to arbitration.
Why A is wrong: Filing a defence and counterclaim is a step to answer the substantive claim, after which s 9(3) bars a stay application.
Why B is wrong: The court is not deprived of jurisdiction; the remedy is a stay under s 9, not striking out the claim form.
Why D is wrong: Section 9(4) is mandatory, not discretionary, and the application must be made before any step to answer the substantive claim.
Why E is wrong: The claim is valid unless stayed; if Harlow does nothing it risks default judgment.
A little more practice done.
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A GOOD HABIT, DELIVERED
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