High Court clarifies what constitutes taking a step in court proceedings where a stay is sought

In Bilta v Nazir, the High Court  provided useful guidance on what will constitute taking a step in proceedings under Section 9(3) of the Arbitration Act 1996 (the Act) and the interaction of that section with CPR Part 11. Section 9 provides that a party to proceedings, which have been brought in breach of an arbitration agreement, may apply for a stay. However, this is subject to the provision that "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". CPR Part 11 provides that any application to dispute the High Court's jurisdiction must be made within 14 days of filing an acknowledgement of service of the claim.

Although it was probably not a point of doubt, this decision confirms that Section 9 of the Arbitration Act displaces CPR Part 11 in cases where one party asserts the existence of an arbitration agreement such that an application for a stay of proceedings under Section 9 need not be made within the time limit set down in CPR Part 11.

Lord Justice Sales also held that, in principle, the applicant had satisfied the test in Section 9 and was therefore entitled to a stay. He indicated that, absent binding authority, he would have held that the right to seek a stay would only be lost upon service of a substantive defence on the merits. In his view, such an approach would accord with the ethos and important policy objectives of the Act, "namely that a party to an arbitration agreement should have a full opportunity to investigate a claim against him, to ask for further details from the claimant and to consider his position in light of full information about the claim as to whether he wishes to have it referred to arbitration or not".

However, binding Court of Appeal authority (Capital Trust and Patel v Patel), precluded Sales LJ from deciding along these lines, as it established that what counted as a step in the proceedings for the purposes of Section 9 continued to be governed by old case law which predates the 1996 Act. In line with that authority, a step in the proceedings which would preclude a Section 9 application is one which impliedly affirms the correctness of the court proceedings and the willingness of the applicant to go along with a determination by the courts instead of by an arbitral tribunal. Therefore, Sales LJ held that the quality of any procedural step taken by a Section 9 applicant in court proceedings must be examined objectively in the light of the whole context known to both parties, including any reservations the applicant may have made as to its Section 9 rights, whether made known to the court or not.

The Judge's indicated preferred approach may be considered preferable to that ultimately taken, as it would provide greater clarity for parties: a Section 9 right would not be lost until service of a substantive defence in the court proceedings. Unless and until the question is again reviewed by a higher court, however, the test established by the older authorities will apply. While this test may be considered less clear-cut and more likely to give rise to unpredictable results, the approach of the courts in support of arbitration remains robust. Nevertheless, parties should take care to assert any Section 9 right (and/or reservation in respect thereof) as soon as possible once proceedings are commenced.

Bilta (in liquidation) v Nazir and others [2010] EWHC 1086 (Ch)